If you’re buying a home, one of those “closing costs” you hear so much about is Title Insurance.  Title insurance protects you against the claims that may arise against the marketability of title of your home.

OK, well, so far that sounds like a good thing.  The story gets a bit stranger when we get into who’s covered, and for what, who pays for it, who picks the company it, and who’s supposed to pick the company.

The Owner’s Policy

The standard owner’s policy is also called a CLTA policy (California Land Title Association).  It provides good general coverage for claims that may arise as a matter of public record (recorded liens, easements, etc.).  You should check your policy for specifics, but generally it also protects against a lack of capacity in any party in the chain of title, deeds not properly delivered, and fraud.   On the other hand, it provides no coverage for non-recorded matters, such as unrecorded easements, encroachments (wrongful, unauthorized building of a structure on your land by a non-owner — usually a neighbor), and other claims to title that are not matters of record.  This is the policy that protects you, the owner, but it’s important to note that the other owner’s old policy does not cover you.

OK, so that’s what you get, now who pays?  Well, if you’re buying a home in Sacramento County, the seller typically pays for this policy.  In El Dorado County, the seller and buyer typically split the cost of this policy 50/50.  In Amador County, the buyer pays.

The Lender’s Policy

The lender’s policy is a stronger policy, and insures the lender against the same claims as the owner’s policy, but also includes extended coverage against non-recorded claims against the property.  This extended coverage policy is also named after a trade association.  In this case the policy is called ALTA, or American Land Title Association.  Although the ALTA policy protects the lender against a broader range defects in the chain of title, neither the ALTA nor CLTA policy protect against defects that were known to the insured at the time the policy was issued, or government regulations such as zoning changes.  The buyer typically pays for the ALTA policy, whether it’s in Sacramento, Placer, El Dorado, or Amador County.

More To Follow

There are many more wrinkles in the title insurance story.  I will address them in a later post.

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